A generalized preferential attachment model for business firms growth rates. II. Mathematical treatment.

DOI10.1140/EPJB/E2007-00165-8zbMATH Open1189.91098arXivphysics/0609020OpenAlexW2108847730WikidataQ111628947 ScholiaQ111628947MaRDI QIDQ978799FDOQ978799

Authors: J. Martínez 

Publication date: 25 June 2010

Published in: The European Physical Journal B. Condensed Matter and Complex Systems (Search for Journal in Brave)

Abstract: We present a preferential attachment growth model to obtain the distribution $P(K)$ of number of units $K$ in the classes which may represent business firms or other socio-economic entities. We found that $P(K)$ is described in its central part by a power law with an exponent $phi=2+b/(1-b)$ which depends on the probability of entry of new classes, $b$. In a particular problem of city population this distribution is equivalent to the well known Zipf law. In the absence of the new classes entry, the distribution $P(K)$ is exponential. Using analytical form of $P(K)$ and assuming proportional growth for units, we derive $P(g)$, the distribution of business firm growth rates. The model predicts that $P(g)$ has a Laplacian cusp in the central part and asymptotic power-law tails with an exponent $zeta=3$. We test the analytical expressions derived using heuristic arguments by simulations. The model might also explain the size-variance relationship of the firm growth rates.

Full work available at URL: https://arxiv.org/abs/physics/0609020

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Mathematics Subject Classification ID

Applications of statistical and quantum mechanics to economics (econophysics) (91B80) Economic growth models (91B62) Time-dependent statistical mechanics (dynamic and nonequilibrium) (82C99)

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Cited In (3)

• Preferential growth: solution and application to modeling stock market
• Firm growth and Laplace distribution: the importance of large jumps
• A generalized preferential attachment model for business firms growth rates. I. Empirical evidence.

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